Walgreens Stakeholders Pushing for Company to Move to Europe for Tax Break

Analysts have calculated that by re-domiciling -- effecting what's called a "tax inversion" -- Walgreens' earnings per share could be increased by 75%.

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Walgreens may soon be able to change its tagline from "At the Corner of Happy & Healthy" to "Take This Tax and Shove It" if a group of powerful shareholders has its way.

The investors, including Goldman Sachs Investment Partners and several prominent hedge funds, own almost 5% of the retail pharmacy's stock. Together, they're pushing for Walgreen Company (NYSE:WAG) to re-domicile overseas to lessen its US corporate income tax hit. In order for this to happen, at least 20% of Walgreens' shares would have to be owned by foreign investors.

This has entered the realm of possibility because of Walgreens' large stake in the Swiss-based Alliance Boots. Walgreens spent $6.7 billion to buy nearly half of the health and beauty group in 2012 and is scheduled to buy the rest next year. The total value of the deal is expected to be $16.2 billion.

UBS analysts recently calculated that Boots' tax rate would be about 20% because it is domiciled in Switzerland, while Walgreens' would be 37.5%. The analysts also calculated that by re-domiciling -- effecting what's called a "tax inversion" -- Walgreens' earnings per share could be increased by 75%. Hence last Friday's urgent meeting in Paris to try and persuade Walgreens' management to officially move.

Dublin Calling?

Reportedly, Walgreens' management is reluctant to take this step because of a possible political backlash. It's true, there's always some political hay to be made by representatives of either party calling out companies skipping the country to lessen their tax burdens. Yet recent months have seen a surge in this kind of activity, particularly by Big Pharma.

US-based Questcor Pharmaceuticals (NASDAQ:QCOR) was recently purchased by Mallinckrodt (NYSE:MNK), which is based in Dublin, Ireland, where the corporate income tax is 12.5%. The tax rate for Questcor's business will fall by about 10%, Mallinckrodt's chief financial officer told analysts last week.

Dealogic reports that this year has already seen $44 billion in global health care deals. Why the sudden rush? One reason, as the Financial Times explained recently, is that the Treasury Department has recently proposed new rules that would require companies hoping to lessen their US corporate income tax burdens to be 50% foreign owned, rather than 20%.

Concerns of political blowback aside, Walgreens and many other US brands contemplating a change in headquarters could also face consumer retaliation for moving offshore. Politicians can make speeches, but the product-buying public can decide to shop elsewhere, hitting a company's bottom line, at least in theory.

Luckily for US-based companies pondering such a move, typical American consumers are far are more concerned about the price and immediate availability of the products they want, as opposed to where the makers of said products are paying their taxes.

It's the American way, like complaining about the sorry state of the country's roads, bridges, and other crumbling infrastructure such tax dodges make possible. Still, it's admirable that Walgreens' management is concerned at least on some level about blatantly ditching its native land for a not-insubstantial tax break, even if that concern is probably overblown.